Bankers' thumbs up for Darling crisis plan

The banking industry today gave a guarded welcome to Chancellor Alistair Darling's plans for sweeping new powers designed to prevent another Northern Rock crisis.

Angela Knight, chief executive of the British Bankers Association, said: 'Most of the proposals which the Chancellor is making are entirely correct and the changes he is proposing we generally think are right. But we would have welcomed more consultation.'

'We put in a much wider set of proposals to the Treasury. These things cover massively technical areas which we quite simply have to get right.'

The Chancellor's key proposals are:

• Financial Services Authority to be given power to seize and protect savers' cash
• More-generous deposit guarantee, probably raised from £35,000 to £50,000
• A series of triggers, such as a bank asking the Bank of England for support, which would enable the FSA to step in
• Greater access to information for FSA to monitor banks' liquidity
• Cobra-style committee which puts the Chancellor ultimately in charge of Tripartite Arrangement

Darling's six months as Chancellor have been dominated by the Northern Rock fiasco. It began with television pictures of savers queuing around the block to withdraw their savings which caused immense damage to the credibility of Britain as a financial centre.

The crisis has now reached the point where the Bank of England has had to lend £26bn of emergency funding to the former building society. Two potential bidders - Virgin Group and Olivant, the group headed by former Abbey boss Luqman Arnold - have 10 days to finalise their rescue plans.

Darling made it clear that, if these come to nothing, nationalisation remains an option. He said: 'There comes a point when you need to make your mind up, for the good of everyone concerned.'

Knight, who is fervently against nationalisation, said the Chancellor had admitted for the first time that the tripartite arrangement between the Treasury, Bank of England and Financial Services Authority had failed at Northern Rock.

She said: 'This is recognition that the ball was dropped by the authorities. Nobody communicated what was happening, particularly when it came down to what lender of last resort meant. The way in which a bank can apply to the Bank of England for assistance has to be changed. It needs to be done earlier and confidentially.'

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Darling's banking insolvency plans would give more strength to the Financial Services Authority, giving it the power to seize and protect savers' money and if necessary to pay it back rapidly. The regulator would also be able to inject new management into an ailing bank and split it up if it helps to isolate the business most at risk.

The Chancellor is also keen to set up a committee like the Cobra one which meets for national emergencies to handle any banking crisis. He made it clear he would chair such a committee and have the ultimate power to decide the fate of any bank in trouble.